Planner fee structures encourage closet indexing: study

Financial advisers' fee structures abet "closet indexing" by fund managers, creating a clear conflict of interest between planners' earnings and their clients' best interests.

Such is the verdict of a Centre for International Finance and Regulation (CIFR) study, which found clients on the verge of retirement were too heavily orientated towards growth assets.

It linked the trend to the nature of planners' fees and said the findings support the banning of commissions from product providers.

Related News:

However, it did not advocate the complete removal of asset-based fees.

"Asset-based fees still hold value," Professor Geoffrey Kingston from Macquarie University who led the CIFR-funded study said.

"The optimal investment strategy allows for both fee structures where income-generating assets are exposed to low risk and the remaining assets incorporate both a fixed fee and a fulcrum-style performance fee to discourage closet indexing."

Professor Kingston said the study found financial plans were "too fragile" around retirement, with inadequate disclosure of the risk.

He said Statements of Advice should be required to disclose the percentage of the planner's allocation to interest bearing securities with high credit ratings.




Related Content

Global dividends rose in first quarter

Dividends across developed markets saw a rise in the first quarter of the calendar year, according to research by Plato Investment Management.Global d...Read more

How will AMP handle departed advisers?

It will be almost another two years before AMP completes its fee for no service review of both current and former advisers, but the firm has acknowled...Read more

Millennials’ good financial habits don’t alleviate stress

Despite have better financial habits than the overall population, millennials are still pessimistic about their financial future, research from Mortga...Read more

Author

Comments

Add new comment